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CIRCULAR

Guiding the financial Regime applicable to border-gate economic Zones managed by Provincial-level people's Committees

Pursuant to the State Budget Law; the Investment Law; the laws and ordinances on taxes, charges, fees and customs;

Pursuant to the Prime Minister's Decision No. 53/2001/QD-TTg of April 19, 2001, on policies towards border-gate economic zones;

Pursuant to the Prime Minister's Decision No. 273/2005/QD-TTg of October 31, 2005, amending and supplementing a number of articles of his Decision No. 53/2001/QD-TTg of April 19, 2001 on policies towards border-gate economic zones;

The Finance Ministry hereby guides the financial regime applicable to border-gate economic zones managed by provincial-level People's Committees as follows:

I. APPLICATION SCOPE AND SUBJECTS

1. Application scope:

This Circular applies to border-gate economic zones (hereinafter called border-gate EZs for short), which are established under the Prime Minister's decisions and managed by provincial-level People's Committees.

With regard to centrally-run border-gate EZs established under separate decisions of the Prime Minister, the applicable financial regime shall comply with separate guiding circulars of the Finance Ministry.

2. Application subjects:

This Circular shall apply to the following subjects:

2.1. Provinces and centrally-run cities (hereinafter collectively referred to as provinces) which have border-gate EZs defined in Clause 1, Section I above;

2.2. Domestic and foreign investors conducting business activities (including infrastructure construction, production, trading and provision of services) in border-gate EZs;

2.3. Business activities conducted within border-gate EZs.

Domestic and foreign investors that conduct business activities in border-gate EZs without establishing economic legal entities therein must account separately such business activities in order to have a ground for determination of preferences.

3. Interpretation of terms

- Tax suspension areas mean those in border-gate EZs, which are established according to the provisions of Clause 1, Article 1 of the Prime Minister's Decision No. 273/2005/QD-TTg of October 31, 2005.

- Inland Vietnam includes the remaining part of border-gate EZs besides tax suspension areas and the remaining part of the Vietnamese territory (except for the areas similar to non-tariff areas defined in Clause 1, Article 5 of June 14, 2005 Import Tax and Export Tax Law No. 45/2005/QH11 and Clause 2, Article 1 of the Government's Decree No. 149/2005/ND-CP of December 8, 2005, detailing the implementation of this Law).

- Non-tariff areas mean those defined in Clause 1, Article 5 of June 14, 2005 Import Tax and Export Tax Law No. 45/2005/QH11 and Clause 2, Article 1 of the Government's Decree No. 149/2005/ND-CP of December 8, 2005, detailing the implementation of this Law.

II. FINANCIAL PREFERENTIAL REGIME

1. Preferences for investment in infrastructure construction in border-gate EZs:

1.1. Investment support from the central budget for infrastructure construction:

a/ Subjects eligible for investment support from the central budget:

The central budget shall provide support to budgets of the provinces having provincially-run border-gate EZs for investment in the construction of important socio-technical infrastructures, service and public facilities for common use in border-gate EZs under target programs, which are included in the cost estimates already approved by competent authorities.

b/ Scope of investment support from the central budget

The central budget shall only provide support for investment in construction of common infrastructures of the entire border-gate EZs, including works outside the zones, which, however, must be in direct service of border-gate EZs, and excluding infrastructures used exclusively for each functional sub-zone in border-gate EZs.

c/ Principles on investment support from the central budget:

- Investment support from the central budget for infrastructure construction in border-gate EZs shall be provided according to projects conformable with the detailed planning on border-gate EZs already approved by competent authorities.

- Based on the annual balance capacity of the central budget and difficulties met by localities, the Government shall consider before submitting to the National Assembly for decision the targeted support for investment in essential infrastructures for border-gate EZs managed by provincial-level People's Committees.

- The central budget capital provided as targeted support for provincial budgets to invest in infrastructures of border-gate EZs shall be identified in the state budget estimates assigned to localities.

- The border-gate EZ management boards or provincial-level People's Committees (in localities without such management boards) being the major planning bodies of localities shall be provided with targeted additional capital construction capital from the central budget for infrastructure construction in border-gate EZs; and shall be entitled to invest in infrastructure construction with state budget capital within border-gate EZs according to the State's current regulations on investment and construction management, if they are investors directly managing infrastructure construction investment projects.

d/ Process of elaborating plans, using and managing investment support capital provided by the central budget:

- Annually, by the time of making the state budget estimates, the border-gate EZ management boards shall coordinate with the concerned agencies in drawing up lists of infrastructure development projects conformable with the border-gate EZ detailed plannings already approved by competent authorities and elaborate cost estimates for capital construction investment for these projects, which shall be submitted to provincial-level People's Committees. With regard to border-gate EZs without management boards, provincial-level People's Committees shall directly implement this regulation.

- Based on the list of infrastructure development investment projects and their cost estimates elaborated by the border-gate EZ management boards, provincial-level People's Committees shall sum up investment capital demands of infrastructure development investment projects in border-gate EZs and capability to balance local resources in order to draw up lists of such projects and propose the central budget to provide investment support, which shall be submitted to the standing members of provincial-level People's Committees for consideration.

- Based on the lists of infrastructure development investment projects in border-gate EZs proposed for investment support from the central budget, which have been approved by provincial-level People's Councils, provincial-level People's Committees shall make detailed estimates on capital demand of each project and send them to the Planning and Investment Ministry and the Finance Ministry.

- The Planning and Investment Ministry shall assume the prime responsibility for summing up demands of provinces having border-gate EZs for investment support from the central budget and reach agreement with the Finance Ministry in making sum-up reports to the Government for submission to the National Assembly for decision on targeted addition of investment in infrastructures within the state budget's balance capacity. Only projects falling within the scope of the state budget investment support defined at Point b of this Clause shall be considered for inclusion in the sum-up report to the Government, which shall be submitted to the National Assembly for decision.

- The central budget capital invested in infrastructure construction in border-gate EZs shall be managed and used according to regulations on management of capital construction investment, the State Budget Law and current guiding documents.

2. Use of land-related revenues for the creation of capital for infrastructure development in border-gate EZs:

Provincial-level People's Committees shall be allowed to use land-related revenues (being the revenues prescribed by land law such as land use levies and land rents) for infrastructure construction and creation of capital for ground clearance in service of development investment, prioritizing border-gate EZs. Particularly for land use levies and land rents for the land areas under the planning of border-gate EZs, they shall be used for investment in infrastructure construction in border-gate EZs.

The assignment and lease of land for creation of investment capital for infrastructure construction in border-gate EZs shall be effected through the auction of land use rights and bidding for projects involving the use of land or not through the auction of land use rights according to the provisions of the Government's Decree No. 181/2004/ND-CP of October 29, 2004, on the implementation of the Land Law, Decree No. 198/2004/ND-CP of December 3, 2004, on collection of land use levies, Decree No. 17/2006/ND-CP of January 27, 2006, amending and supplementing a number of articles of the decrees guiding the implementation of the Land Law, Decree No. 187/2004/ND-CP on the transformation of state companies into joint-stock companies, and the Prime Minister's Decision No. 216/2005/QD-TTg of August 31, 2005, promulgating the Regulation on auction of land use rights for land assignment with the collection of land use levies or land lease and the relevant current provisions of law.

Based on the local land use plannings and the potentiality of collecting land use levies from auction, the demand for compensation expenses, the support for people having land recovered and the demand for investment in infrastructure works eligible for the state budget investment under legal provisions, provincial-level People's Committees shall direct finance agencies in summing up these revenues and expenditures into the annual state budget estimates, which shall be submitted to the People's Councils of the same level for decision.

Based on the annual budget estimates decided by provincial-level People's Councils, provincial-level People's Committees shall assign finance agencies to coordinate with concerned units in organizing the collection and spending of land use levies and accounting them into the state budget according to the prescribed regime.

Where organizations or individuals advance funding for compensation and support for people having land recovered for investment in infrastructures being subjects of the state budget investment before organizing auction to collect land use levies, the collected land use levies to be refunded to such organizations or individuals shall be fully accounted as state budget revenues and expenditures under current regulations.

3. Preferences for business projects in border-gate EZs:

3.1. Preferences for tourist projects:

Investors of tourist business projects in border-gate EZs shall enjoy investment preferences applicable to projects on the list of projects eligible for investment promotion under the Government's regulations.

3.2. Preferences regarding land and water surface rents:

Domestic and foreign investors investing in border-gate EZs shall enjoy land and water surface rent preferences according to the Government's Decree No. 142/2005/ND-CP of November 14, 2005, on the collection of land rents and water surface rents and guiding legal documents.

3.3. Tax preferences:

Projects of investment in border-gate EZs shall enjoy tax preferences in accordance with current provisions of law.

III. TAX SUSPENSION AREAS AND FINANCIAL REGIME APPLICABLE THERETO

1. Conditions for establishment and operation of tax suspension areas:

Tax suspension areas in border-gate EZs shall be established only when all the following conditions are concurrently met:

- Having solid fences to ensure the separation of their operations from other functional sub-zones in border-gate EZs;

- Having no population quarters, no permanent or temporary residents (including foreigners);

- Having customs offices to oversee and inspect goods and means of transport entering or leaving tax suspension areas.

2. Business activities in tax suspension areas:

Based on Clause 1, Article 1 of the Prime Minister's Decision No. 273/2005/QD-TTg of October 31, 2005, amending and supplementing a number of articles of the Prime Minister's Decision No. 53/2001/QD-TTg of April 19, 2001, on policies towards border-gate EZs, there are the following activities in tax suspension areas: logistic services; goods production and processing; international commerce; exhibitions for introduction of products.

3. Tax, charge and fee policies applicable to tax suspension areas:

3.1. Enterprise income tax (EIT):

Projects of investment in tax suspension areas shall enjoy EIT preferences according to the EIT Law and legal documents guiding the implementation thereof.

3.2. Import and export taxes:

a/ Import and export goods in the following cases shall not be liable to import and export taxes:

- Goods exported from tax suspension areas to foreign countries; goods imported into tax suspension areas from foreign countries for use within tax suspension areas only;

- Goods brought from tax suspension areas to non-tariff zones, export-processing zones or vice versa.

- Goods not liable to export tax, brought from inland Vietnam into tax suspension areas.

b/ For goods liable to export tax and brought from inland Vietnam into tax suspension areas, export tax must be paid and export procedures must be carried out in accordance with current provisions of law.

c/ For goods imported into inland Vietnam from tax suspension areas, import tax must be paid according to current regulations. Particularly for goods produced, processed, recycled or assembled in tax suspension areas, if they meet all the conditions specified in the Finance Ministry's Circular No. 14/2006/TT-BTC of February 28, 2006, guiding the application of Vietnam's special preferential import tax rates for implementation of the Agreement on Common Effective Preferential Tariffs (CEPT) of the ASEAN countries, the provisions of this Circular shall apply.

d/ Domestic and foreign organizations and individuals involved in production and business activities in tax suspension areas that import production raw materials, supplies or goods from foreign countries but have not used them up while the byproducts still have commercial value and are permitted for sale into inland Vietnam shall have to fill in all customs procedures and pay import tax according to current regulations.

3.3. Special consumption tax (SCT):

a/ Goods and services liable to SCT, which are produced and consumed in tax suspension areas or imported from foreign countries into tax suspension areas or vice versa, shall not be subject to special consumption tax. Particularly for cars of under 24 seats, SCT shall be paid under current common regulations.

b/ Goods and services liable to SCT, which are exported from inland Vietnam into tax suspension areas, shall not be subject to SCT. Particularly for cars of under 24 seats, SCT shall be paid under current common regulations.

c/ Goods and services liable to SCT, which are transferred or sold from tax suspension areas to non-tariff areas or vice versa, shall not be subject to SCT.

d/ Goods liable to SCT, which are imported into inland Vietnam from tax suspension areas, shall be subject to SCT on import goods under current regulations.

3.4. Value added tax (VAT):

Production and business establishments in tax suspension areas shall use VAT invoices according to current regulations, make VAT registration, declaration and payment in cases subject to VAT payment according to the provisions of this Circular. For cases in which goods are not subject to VAT payment, the VAT line in VAT invoices shall be crossed (x). Specifically:

a/ Goods and services produced and consumed in tax suspension areas or imported from foreign countries into tax suspension areas or vice versa shall not be liable to VAT.

b/ Goods and services transferred or sold from tax suspension areas to non-tariff areas or vice versa shall not be liable to VAT.

c/ Goods and services exported from inland Vietnam into tax suspension areas shall be eligible for the VAT rate of 0%.

d/ Goods and services imported from tax suspension areas into inland Vietnam shall be liable to VAT on import goods at the currently-prescribed tax rate. Concretely, enterprises in tax suspension areas, when selling goods to inland enterprises, shall make invoices exclusive of VAT and tax rates and with crossed VAT lines. Inland enterprises (or enterprises in tax suspension areas, which bring goods inland for sale by themselves) shall pay only VAT on import goods according to customs declarations made upon filling in procedures for the import of goods into the inland market.

3.5. Other taxes, charges and fees:

Other taxes, charges and fees shall comply with current provisions of tax laws and ordinances, the Investment Law, the Ordinance on Charges and Fees and legal documents guiding the implementation thereof.

4. Customs procedures for goods brought into or out of tax suspension areas:

Customs procedures, customs inspection and supervision regimes applicable to goods brought into or out of tax suspension areas shall comply with the provisions of Section VIII, Part B of the Finance Ministry's Circular No. 112/2005/TT-BTC of December 15, 2005, guiding customs procedures, inspection and supervision for goods brought into or out of free trade areas and non-tariff areas.

IV. ORGANIZATION OF IMPLEMENTATION

1. For the People's Committees of provinces having border-gate EZs:

- Based on the demand for development and commercial exchanges in border-gate EZs, presidents of the People's Committees of provinces having border-gate EZs shall have to direct and probe into the establishment of tax suspension areas in border-gate EZs and ensure full satisfaction of the conditions specified in Clause 1, Section III of this Circular. Tax suspension areas shall not be established and operated unless the specified conditions are met.

- Presidents of the People's Committees of provinces having border-gate EZs shall decide on the establishment of tax suspension areas in border-gate EZs after reaching agreement with the Construction Ministry, the Trade Ministry and the Finance Ministry on tax suspension area planning so as to ensure the uniformity throughout the country.

- Provincial-level People's Committees shall direct the relevant agencies (border guards, border-gate police, customs offices, tax offices...) to enhance coordination in the application of inspection and control measures against acts of smuggling and trade fraud in tax suspension areas in border-gate EZs.

2. The General Department of Customs shall arrange customs forces to carry out customs procedures for goods brought into or out of tax suspension areas and conduct customs supervision over tax suspension areas according to the provisions of customs law.

3. Implementation effect:

- This Circular shall take effect 15 days after its publication in "CONG BAO." It shall replace the Finance Ministry's Circular No. 59/2001/TT-BTC of July 17, 2001, guiding the implementation of financial policies applicable to border-gate EZs.

- The border-gate EZ management boards, tax offices, customs offices, state treasuries and relevant agencies in border-gate EZs should enhance coordination in implementation of the provisions of this Circular and concurrently ensure the application of inspection and control measures against acts of smuggling and trade fraud in border-gate EZs.

Any problem arising in the course of implementation should be reported to the Finance Ministry for study and settlement.